Guest Column: Investing in female founders not a noble pursuit, just good business sense

3 Jun 2014466 Views

Helen McBreen of NDRC's investment committee

Ahead of the Female Founders Forum in Dublin on June 30, Dr Helen McBreen of NDRC’s Investment Committee, argues that investing in female led business is about pragmatism not some altruistic quest.

At NDRC we seek brilliant investment opportunities at the earliest stage of a technology company’s lifecycle. In my role on NDRC’s Investment Committee I meet large numbers of start-up entrepreneurs and, whether NDRC invests or not, their passion for what they invent and their determination to succeed impresses. There are over 150 companies in NDRC’s portfolio, and 23pc of our backed ventures have female founders or co-founders.

We are now working to increase that figure, not because we are on a noble quest or imposed quota hunt, rather it is a pragmatic ‘Moneyball-esque’ decision based on the unequivocal evidence that female-backed ventures perform better fiscally. This was neatly demonstrated by Cindy Padnos (Managing Partner at Illuminate Ventures) in her report entitled High Performance Entrepreneurs: Women In High-Tech. For me, there are some real stand-out figures in this report:

Venture-backed companies run by a woman had annual revenues that were 12 pc higher, using an average of one-third less committed capital (Source: Kaufmann Foundation)

Female entrepreneurs experience fewer failures in moving from early to growth-stage companies (Source: Babson College & London Business School).

Organisations inclusive of women in senior management achieved 35pc higher return on equity and furthermore gender diversity is particularly valuable where innovation is key (Source: University of Maryland & Columbia Business School).

Aside from being well established cornerstones of the global technology industry General Motors, IBM, Hewlett Packard, Yahoo, Xerox and Intel all have something significant in common. The CEOs of these behemouths all provide strategic vision and drive a passion for growth. They are inspiring leaders. They are all women. And, as listed by Fortune, there are plenty more role models just like them. Take the Mashable list of 44 female founders as further evidence – it shows the potential of female led technology ventures and that they are securing institutional investment with some stand outs achieving valuations north of UD$1Bn – Polyvore, Eventbrite and Vente Privee.

Focus on Funding

There are also a growing number of organisations focused on getting female entrepreneurs funded and they show that female entreprenuers that leverage their networks can attract funding. Golden Seeds has invested over US$62million in more than 60 ventures. Other notable organisations include 500 Women, Springboard Enterprises, and Astia. The organisations provide entrepreneurs the opportunity to network while providing the founders the opportunity to overcome barriers to funding.

So, with role models in technology, organisations that actively support female entrepreneurship and activity to encourage more females into STEM, it would seem the missing conditions are in place and female entrepreneurs are poised for success. But, two data points suggest the barriers to institutional investment for female entrepreneurs remain – and they are high.

Gender bias

Firstly, the existence of gender bias at the investment table. While all investors testify they invest in the best regardless of gender, evidence shows investment bias exists (Source: Harvard Business School, Wharton School at UPenn and MITs Sloan School). This research indicates female founders are at a disadvantage because predominately male investment panels are simply more likely to invest in men.

Secondly, there are very few female investors which relates to the continuance of bias. According to the Midas List 2014 which features technology’s best investors, women represent only 4pc of the US technology investment community. Data from Pitchbook shows that 4.2pc of partner level VC’s are female. So, while improvements are made to dealflow from female entrepreneurs the same changes are not reflected in the investment panels who act as gatekeepers to success for these companies. A broader variety of backgrounds, talents and – yes – gender, among these gatekeepers would ensure they are better equipped to evaluate the myriad opportunities presented to them for investment – and spot the less obvious ones.

Research points to the impact that female investors can have: women are more like to directly connect to and attract female-led ventures to their firms (Source: Illuminate Ventures). Increasing the number of female investors, and introducing diversity on investment panels, becomes an obvious solution to encourage female entrepreneurs to approach sources of capital where they may have otherwise had a lower chance of success. This in turn will contribute to the success of women accessing equity capital.
Alongside efforts to encourage female entrepreneurs, there are initiatives working to change the ratios of female investors creating more diverse investor panels – Plum Alley, The Pipeline Fellowship, and The Next Woman to name a few.

An opportunity?

Investors and entrepreneurs must be part of the solution to ultimately breakdown the barriers to the success of female entrepreneurs. Here are my thoughts for those of you on either side of the investor table:

FOR INVESTORS:

Soak up the results from female led ventures -a tremendous investment opportunity may exist.

Diversity in teams is an underestimated asset – if there isn’t diversity in a team look for it.

Acknowledge that gender bias can exist and be rigorous in ensuring it does not consciously, or unconsciously, bias your decision to invest.

FOR ENTREPRENUERS:

Look to the organisations mentioned in this article for funding support.

Break the circle of the usual investor networking events – get to know your investor well and invite them to new events that you attend.

Investors will still only invest in the best opportunities. Keep your focus on creating the opportunity for a global, scalable business.

At NDRC, we know that businesses with female founders and co-founders are well positioned to achieve tremendous heights. Like all investors, we do not like to miss an opportunity and so we’re putting the foot to the floor to make sure dealflow from female founders comes our way. If you are a high net worth investor or an entrepreneur, and you want to get involved, learn more about our Female Founders programme here.Dr Helen McBreen is a member of the NDRC Investment Committee. She plays a key role in the allocation of capital into new technology startups and leads the effort at NDRC to source investment opportunities across domains including electronics, computer science, medtech, bioinformatics, nanotech, greentech and digital technologies. She is a speaker at our upcomingFemale Founders Forumon June 30.